Where Do You Look for New Business?

I started to notice the trend a couple of months ago in the steely-eyed blank stares served up from some VCs I was pitching with my client.

“Yeah, it’s kind of interesting,” they asked, “but where’s the B2B component of the business model?”

I really started to notice when another client started selling office furniture.

In case you haven’t noticed, times are starting to get tough for business-to-consumer sites, both e-tail and advertising-supported ventures. We all know that the stock market bounced around like a (excuse the pun) hopped-up frog last week. But in the midst of turmoil, several major Net stocks took a big hit.

CDNow got smacked when their merger with Columbia House bit the dust, pushing their stock to below $7, a far cry from their 52-week high of over $23. Amazon.com’s down 30 percent since December 1, Value America took a plunge of more than 60 percent, Beyond.com dropped 50 percent and eToys slid downhill at an awesome rate to less than 80 percent of its high. Onetime e-biz posterchild Peapod, the first online grocery store, is now considering selling out after its CEO announced that he was jumping ship for “health reasons” last week. HomeGrocer, a new online grocery site, closed at only $2 above their IPO opening price.

What’s going on, and how’s this trend going to affect us e-marketers? Basically, the stock market’s waking up, looking for breakfast, and getting impatient with not finding anything in the profit fridge. Months and years of sticking with over-valued companies that continue to lose money at prodigious rates is starting to take its toll.

The heady days when any new dot-com with a business plan that didn’t look like it was written by a third-grader (and some that did) could go public are rapidly drawing to a close. And those of us who’ve been making nice livings off of their bankrolls better start examining our own businesses before we get caught in the backwash as they go down the drain.

Where should we be looking for new business? The answer seems to be clear: in the business-to-business market. While a lot of e-tailers are taking it on the chin at the moment by competing below cost in a market increasingly crowded with “me-too” sites and verticals sliced hair-thin, the worldwide business-to-business market continues to grow like gangbusters.

In a recent study, the Gartner Group predicts that global B2B transactions will jump from $145 billion in 1999 to $7.29 trillion (yes, with a T) by 2004. And, while your mind’s reeling from those numbers, notice that the operative term here is “global” Gartner predicts that by the same year, North America will make up only 39 percent of that total, down from 63 percent in 1999. Europe is expected to garner a similar share, followed by the Asia-Pacific region and Latin America.

A huge opportunity exists now for those willing to make the shift from chasing B2C vapor to putting their corporate noses to the grindstone of B2B commerce. The opening is gaping wide: A March 14 study by Meta Group noticed that larger companies (those with over $100 million in revenue) are spending far more on consumer initiatives than on developing B2B infrastructures and marketing. Seventy-seven percent of the companies surveyed said they were spending the bulk of their money on online marketing, while 69 percent spent heavily on customer service, and 65 percent put cash into selling directly online. Yet, even as B2C cools (and all signs point up for B2B), only 39 percent of these same companies had invested in online distribution and logistics, 32 percent spent on inventory management, and 28 percent spent on supplier management. Yikes.

Does all this mean that those of us in the online marketing world need to abandon what we’re doing and re-tool to become ASPs like USinternetworking or start cooking up business models like the new Jamcracker?

Not necessarily. Even though putting together business process automation software and B2B systems is going to be a vital part of the new economy, communicating with those suppliers and customers and distributors and sales forces is still going to be an essential part of the mix. The best system in the world, if nobody knows about it, might as well not exist. If the business partners who must interact with the system don’t understand how to use it, if its benefits are not communicated well, and if the chain doesn’t perceive any benefit from it, then most likely it won’t get used.

Communications is still communications, and those of us who know how to communicate using electronic media (coupled with offline channels) can prosper.

Not all new B2C ventures are destined for the cyber-scrapheap. Far from it. Sales of goods and services online are going to continue to rise as the Net becomes an essential part of our lives. People are still going to read news and look for information online… that’s not going to change.

Gemini Consulting and Honkworm International predict that the online entertainment market will increase in value by 64 percent this year, jumping to $1.8 billion from $1.1 billion. The market has an increasingly short attention span, and more folks will always be looking for something new to distract them. But as consolidation moves to aggregate more and more content into fewer and fewer outlets, and as the attention economy requires that people concentrate on fewer media outlets, we must be vigilant about what we get ourselves and our companies into.

And look out for the niches the future may be filled with a lot more successful, targeted small players owning a small piece of the pie than with a lot of big players carving up the masses. One thing is clear: If you’re getting blank stares now, it’s time to re-evaluate.

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Overhead view of a row of four business people interviewing a young male applicant.